Of the approximately 1.2 million mortgage modifications that have been completed since the Home Affordable Modification Program (HAMP) was first launched in 2009, more than 306,000 borrowers have re-defaulted on their loans and more than 88,000 are at risk of following suit, the Special Inspector General for the Troubled Asset Relief Program (SIGTARP) said in its quarterly report to Congress, released July 24.
Considered the ‘centerpiece’ of the Treasury's efforts, as outlined by Congress through the TARP legislation, to "[protect] the interests of taxpayers" and "help families keep their homes," HAMP has helped about 865,000 homeowners avoid foreclosure through permanent mortgage modifications since its launch four years ago.
However, since then, more than 25% of participants have re-defaulted out of the program, often into a less advantageous private sector modification. Of those, about 22% have moved into the foreclosure process, according to the SIGTARP report. In addition about 88,000 have missed one to two monthly mortgage payments and thus are at risk of re-defaulting as well.
Interestingly, the report finds that the longer a homeowner stays in the HAMP program, the more likely they are to default. Those who have been in the program since its launch are re-defaulting at a rate of 46%, the inspector general found. This is of particular concern because the program has been revised several times and was recently extended to run until the end of 2015. As of April 30, $815 million (18% of TARP funds spent for all HAMP permanent modifications) in taxpayer money has been spent on the more than 163,000 HAMP permanent modifications that re-defaulted, according to the Treasury. Thus, the extension of the program is putting taxpayers at greater risk for losses.
‘It is crucial that Treasury recognize this problem and take proactive steps to ensure that HAMP lives up to its promise and potential,’ SIGTARP said in its report, adding that the high rate of re-default is not only hurting taxpayers, but also families and entire communities.
As part of TARP, the Treasury allocated $19.1 billion to HAMP. So far, it has spent $4.4 billion, SIGTARP said in its report.
To help stem further program losses, SIGTARP has made several recommendations to curb HAMP re-defaults, including conducting further research into the causes of re-default, requiring servicers to develop and use an "early warning system" to actively reach out to homeowners who may be at risk of re-defaulting, and providing help and information to homeowners who have re-defaulted. The Treasury has reportedly agreed to implement these recommendations, which will help ensure that homeowners who receive HAMP modifications have affordable and sustainable mortgages.
Through a review of the HAMP data, SIGTARP found that many of the homeowners who re-defaulted received the least reduction in their monthly mortgage payment and overall debt, were still underwater on their mortgage, and had subprime credit scores and high overall debt burdens at the time of modification. SIGTARP hopes that by addressing these areas of concern, losses can be slowed and more participants will succeed in staying in their homes.
‘As our review indicates, with each day that passes, more and more homeowners fall out of the HAMP program,’ SIGTARP said in its report. ‘To protect the interests of both homeowners and taxpayers, Treasury should take action so that as many homeowners as possible can be helped to keep their homes – particularly those who have re-defaulted, are re-defaulting, or are at risk of re-default – and can permanently sustain their mortgages. It is crucial that HAMP fulfill its intent to help homeowners.’
To download a copy of the report, including the recommendations, click here.